Context:
The Reserve Bank of India (RBI) released a study highlighting the growing foreign investor participation in Indian mutual fund schemes.
Key Highlights:
- Foreign Liabilities: Increased 19.9% YoY, reaching ₹2.6 lakh crore in FY25, up from ₹2.1 lakh crore in FY24.
- Top Investors:
- UAE: Largest contributor, accounting for 1/5th of total MF investments.
- U.S. & U.K.: Together contributed ~20% .
- Australia & Canada: Fastest growth, with investments rising over 40% in FY25.
Implications:
- Positive Side:
- Enhances capital inflows into domestic mutual funds.
- Strengthens India’s integration with global financial markets.
- Concerns:
- Increases exposure to global market volatility and sudden foreign outflows.
- May affect financial stability during external shocks.
- Raises regulatory challenges in monitoring cross-border flows.
Regulatory:
- Investments by Foreign Portfolio Investors (FPIs) and non-residents are regulated by SEBI and RBI.
- Governed under Foreign Exchange Management Act (FEMA), 1999.
